Greenfield boom: Hotel investments in India return to pre-pandemic high | News
India’s hospitality sector is seeing a revival in greenfield hotel developments, with investments in the first half of 2024 returning to pre-pandemic levels.
In 2023, greenfield developments accounted for approximately 48 per cent of hotel brand signings by keys, climbing further to 53 per cent in the first half of 2024, marking a return to pre-pandemic levels seen in 2019, as per the data shared by HVS Anarock with Business Standard.
“While brownfield developments became the preferred choice after the pandemic, driven by lower risk and faster completion timelines amid economic uncertainty, the focus is once again shifting back to greenfield projects,” said Mandeep S Lamba, president and chief executive officer, HVS Anarock. “This renewed interest is primarily driven by hotel chains expanding aggressively into Tier-II, -III, and -IV cities, where both business and leisure travel are experiencing robust growth,” he added.
Earlier, JLL had said in a report that during the first half of 2024, six hotel deals were completed, including operational assets in Tier-I and leisure markets, as well as land leases in the airport district for greenfield development.
The percentage of investments in brownfield hotel projects has decreased after a sudden jump during the pandemic.
Greenfield hotel development refers to building new hotels on previously undeveloped land, while brownfield projects involve redeveloping or expanding existing properties.
“Indore, Kanpur, Bhubaneswar, Varanasi, Udaipur, Mangalore, and Coimbatore are experiencing a rise in demand as greenfield projects here can capture early-mover advantage and cater to a growing middle-class thirst for regional travel,” said Nandivardhan Jain, chief executive officer, Noesis Capital Advisors, a hotel transaction advisory and consulting firm.
He added that government initiatives to push sustainable tourism offer incentives for greenfield development, with some states making land acquisition smoother with single-window clearances.
Deepak Jain, managing director at MayFair Consultancy, another hotel consultancy firm, said that post-COVID, the hospitality sector has seen a major investment shift as investors have witnessed positive returns from hotel investments. He added that post-COVID, banks have been more open to providing loans to hotels due to their profitability.
MayFair Consultancy has signed five management contracts and is in advanced stages with another six hotel contracts. These are spread across India, from the economy to upper-scale hotel segments.
Industry experts believe that greenfield hotel developments offer flexibility, as unlike brownfield developments, they do not constrain hotel chains and developers to an existing structure. Also, greenfield developments are preferred for expanding into emerging destinations due to the lack of readily available, good-quality hotel infrastructure.
Developing greenfield hotel projects in India can take anywhere from 36 to 60 months, depending on the project type and location, due to regulatory and approval delays, said Lamba. He added that hotel developers often need to invest heavily in infrastructure, which can increase costs and delay project completion. Land acquisition is another major hurdle, especially in areas where land titles may not be clear, or where local communities may resist development.
“Macroeconomic factors such as inflation, rising construction costs, fluctuating interest rates, and limited borrowing options for non-institutional investors in the sector can further complicate greenfield projects, especially when compounded by long development timelines,” Lamba added.
Industry experts agree that the greenfield boom is not limited to leisure travel but is also accommodating the rising demand in the corporate travel segment.
“The real game-changer is the upper upscale and upscale segment in Tier-II cities. These cities offer the ideal blend of affordable land, rising disposable incomes, and lesser competition due to limited branded rooms supply. In places like Ludhiana, Chandigarh, Bhopal, Patna, or even spiritual hubs like Varanasi, Ayodhya, Puri, Tirupati, Katra, Ujjain, and Udupi, the potential for upscale, boutique-style greenfield projects is enormous. This is where investors can find untapped markets and create iconic, high-margin hotel properties,” Nandivardhan added.
First Published: Sep 22 2024 | 5:50 PM IST
